Ambivalent Answers to Important Questions: The Relationship between Foreign Aid and Democracy†

Jason S. Enia University of Southern California

VKC 330, MC 0043, Los Angeles, CA 90089-0043

December 2006

DRAFT – COMMENTS WELCOME PLEASE DO NOT CITE WITHOUT PERMISSION

Abstract: The notion of “democracy promotion” has found its way into many different facets of international relations and foreign policymaking since the early 1990s. Increasingly, foreign aid has become a tool used by democracies in attempts to promote the emergence or consolidation of democracy in other countries. But what is the relationship between foreign aid and democracy? Does foreign aid promote democracy? If so, how? Conversely, does the relationship flow in the opposite direction? Do higher levels of democracy attract foreign aid as a reward? This article attempts to organize the literature on these and other important questions in order to establish what is known about the relationship between foreign aid and democracy along with what still needs to be determined. It argues that despite the high stakes in terms of policy implications, the study of the relationship between foreign aid and democracy continues to be plagued by a number of conceptual and methodological ambiguities, leaving us with ambivalent answers to important questions. Moving forward, we need more nuanced understandings of both the processes and mechanisms which drive democratization as well as the nature of the domestic political economies in donor countries that often guide the provision of foreign aid.

† I thank Gerry Munck and Saori Katada for their insightful comments on an earlier draft.

1

The promotion of democracy in other countries, particularly those deemed strategically

important to the promoter, has long been a goal of foreign policy. Democracy promotion in Latin

America, for example, has been has been an explicit goal of United States’ foreign policy going back

to the Carter administration (Lowenthal 1991, vii). However, the “third wave” of democratization

(Huntington 1991) coupled with end of the Cold War ushered in a new and seemingly larger

opportunity to restructure world politics, an opportunity which had not been seen since the end of

World War II. From the first Bush administration’s emphasis on a “new world order,” to the

emphasis on a “unipolar moment” espoused by budding neo-conservatives, the debate raged as to

the grand strategy that would underpin the foreign policies of the United States and the rest of the

developed world. One vision that steadily took hold was that the world was amidst a “democratic

moment,” a moment in which encouraging the transition to and development of democracy would

need to be key strategic goals (Diamond 1992). Indeed, during the last ten years, democracy has

more increasingly been touted as a universal value (Sen 1999).

Particularly since the early 1990s, this notion of “democracy promotion” has taken off in

many respects and found its way into a number of different facets of international relations and

foreign policymaking (McFaul 2004). It is argued, for example, that the role of democracy in

international law has changed, particularly since the end of the Cold War, and a new norm of

democracy is being injected into the bylaws and operating procedures of particular instruments of

regional and international governance (Rich 2001). This norm has also found its way into individual

countries’ foreign policies, particularly the United States, which since 9/11 has tied the promotion of

democracy to its own security imperatives (McFaul 2004; The White House 2002, 4).

In a worldwide attempt to meet this goal, the provision of foreign aid has become a

particularly important foreign policy tool. Indeed, the Office of Democracy and Governance has

become an increasingly important department within USAID, the government agency through

2

which the United States provides foreign aid. Outside of the U.S., many members of the OECD

Development Assistance Committee (DAC) have explicitly stated the promotion of “good

governance” as a main goal of their development assistance programs (e.g., Federal Ministry for

Economic Cooperation and Development 2002). On a multilateral level, EuropeAid, the Office of

Development Cooperation for the European Union, has the “European Initiative for Democracy

and Human Rights” as one of its major development assistance themes. In addition, the World

Bank (WB) has stated the promotion of democratic values and good governance as a major aim of

its aid program (Adams 2001; World Bank 1998).

But despite the fact that foreign aid is being used as a tool to promote democracy, we know

surprisingly little about aid’s actual ability to accomplish this task. In fact, there has been relatively

little progress in coming to a consensus on the nature of the relationship between aid and democracy

more generally. There are a number of important questions which the literature should be able to

answer: Does foreign aid actually promote democracy? If so, what are the mechanisms through

which this is best accomplished? Conversely, does the relationship flow in the opposite direction?

Does the existence of democracy in a recipient country lead to its receipt of more foreign aid? If so,

how much more aid are countries that are relatively more democratic likely to receive from

international aid donors compared with other potential aid recipients? Finally, what can be said

about the relationship between democracy and aid, where democracy might act as either a positive

or negative intervening variable, affecting foreign aid’s ability to accomplish other goals? For

example, does democracy foster or inhibit foreign aid’s ability to promote economic growth and

development? What are the mechanisms behind this relationship? These are important questions,

and while a large amount of research has been conducted in an attempt to answer them, there are

very few findings that cannot be contradicted by the findings of others. In the end, the number of

widely accepted conclusions that can be drawn from this research is very small.

3

This article reviews the literature on these and other important questions. Its goal is to

establish what is known about the relationship between foreign aid and democracy as well as what

still needs to be determined. I argue that despite the high stakes in terms of important policy

implications, the study of this relationship continues to be mired in a number of conceptual and

methodological ambiguities, leaving us with ambivalent answers to important questions. Moving

forward, we need more nuanced understandings of both the processes and mechanisms that drive

democratization as well as the nature of the domestic political economies that often guide the

provision of foreign aid in donor countries and the receipt of foreign aid in developing ones.

The article proceeds as follows: In the first section, I establish the importance of the topic

through a brief examination of the OECD data on foreign aid, specifically focusing on the

increasing importance that is being placed on aid or development assistance as a means of

promoting democratization in recipient countries. Second, I examine the historical and continued

difficulty in establishing conceptual specificity for both the terms democracy and aid, and argue that

these conceptual issues continue to be the main obstacle to achieving some intellectual consensus

about any relationship that might (or might not) exist between the two. The third and the fourth

sections, respectively, break the literature examining the relationship between democracy and aid

into two sub-questions. The first question generally focuses on the effects of foreign aid, asking

“How does foreign aid effect democracy?” The second focuses on the on the determinants of

foreign aid and asks, “Does the presence or absence of democracy in recipient countries have any

affect on the amount of aid donors are willing (or not willing) to provide?” The fifth section

examines the other ways that aid and democracy have been tied together in the literature. And by

way of conclusion, the final section reexamines the questions posed above and posits constructive

ways to move the research agenda forward.

4

What’s at stake in our ability to understand democracy and foreign aid?

During the past fifteen years, the promotion of democracy has become an important part of

development assistance and cooperation (Carothers 1996; McFaul 2004; Santiso 2001; Stokke 1995;

Sørensen 1993; Woods 2005). The notion of good governance, for example, has become particularly

salient within the lexicon of development practitioners as well as within foreign policy rhetoric more

generally. It is a term that has taken on a wide variety of meanings. Traditionally it referred to

sound administration and management and more specifically, the recipient country’s ability to make

expedient and efficient use of the foreign assistance which it received. However, as a policy

metaphor, good governance has more recently come to be equated with a broader focus on the how the

process of politics is enmeshed in larger political structures, namely regime type (Doornbos 2001,

95). Armed with a way to discuss these issues without directly interfering in the business of

sovereign nations, many developing countries have begun to stipulate that good governance be a key

criterion on which potential recipient countries are judged.

This overall focus on what were, if not in name, then in practice, democratic principles led to

a number of new policies. The goal is to link development assistance with good governance as a

vehicle for promoting democratization. In the United States, for example, a number of specific

agencies, not just USAID, have been involved in providing assistance to countries in the name of

democracy. Carothers (2000) identifies the National Endowment for Democracy (NED), the

Department of State, the Department of Defense, the Asia Foundation and the Eurasia Foundation

to name a few.

In the few years after 9/11 in particular, as the promotion of democracy has been more

intricately linked to U.S. security policy, the United States has created even more institutions linking

development assistance with good governance. For example, in March 2002 President Bush laid out

plans for a new Millennium Challenge Account (MCA). Viewing the promotion of democracy as

5

part and parcel of the larger war on terror, the administration pledged to direct a portion of U.S.

development assistance toward poor countries that could show evidence of sensible economic

policies and good governance. This aid would be in the form of grants, and would be given as a

reward for the demonstration of good governance ex-post, not as an ex-ante incentive toward

achieving such policies (Woods 2005, 398). Despite the fact that three years into the process of

establishing the MCA only compacts have been established and no disbursements have been made,

the mere creation of the MCA – which stands separate from the processes that affect the general

USAID account – signals the importance that the United States is placing on the promotion of

democracy and on the use of foreign assistance as a powerful tool toward the achievement of that

end.

The United States is not alone in its pursuit of democratic objectives nor its use of

development assistance as a primary means (Carothers 2000). Recent “Peer Reviews” conducted by

the OECD DAC for both Germany and France, two of the world’s largest aid donors in terms of

total money spent, point out that good governance is a important goal for both countries. Germany,

for example, is noted as “one of the strongest promoters of good governance among the DAC

members” (Development Assistance Committee 2001, 42). Germany was one of the strongest

supporters of the policy of tying debt relief to good governance when the topic of debt relief was

discussed at the G8 Summit in Cologne (43). With respect to France, the peer review notes a similar

emphasis. Once of the country’s main development goals is the promotion of a “’more equitable

and peaceful’ world integration,” and one of the main vehicles through which it hopes to accomplish

this goal is by putting issues of democratic governance “at the heart of poverty reduction strategies

in every country” (Development Assistance Committee 2004, 24).

On the whole, the DAC donor countries seem to echo this emphasis on good governance

and democratic principles. As shown in Figure 1, the official development assistance (ODA) that

6

has been allocated to “Government and Civil Society” has steadily increased throughout the 1980s

and 1990s. In real terms (adjusted to 2003 dollars), the amount given to government and civil

society programs was $151.66 million in 1980. By 2003 that figure had increased over thirty-one

times the 1980 amount to $4.712 billion.

INSERT FIGURE 1 HERE

Figure 2 displays this trend in a more telling way, in terms of total ODA given. In 1980, the amount

of ODA designated for government and civil society represented a little over 0.5 percent of total

ODA given by DAC donor countries to the developing world. However, by the early 2000s, this

percentage increased to almost 9 percent.

INSERT FIGURE 2 HERE

Throughout the last two decades, government and civil society programs have become an

increasingly important part of donors’ foreign aid allocations.

A resounding theme in all of the aforementioned is that donor nations have been, and

continue to be, explicit in their hopes to promote democracy throughout the developing world. A

large amount of money has been poured into non- or fledgling-democracies over the past twenty

years, and it appears that this trend will continue well into the future. It is in both the interests of

the donor and recipient countries to make sure that this form of development assistance is being

well spent. Citizens in donor countries need to know that their tax dollars are being utilized

effectively, and citizens in recipient countries – among the most vulnerable people in the world –

deserve to have the development resources donated to them put to their best possible uses. An

7

adequate understanding of the relationship between foreign aid and democracy (in any number of

different aspects) and the various mechanisms underlying it would allow donor countries to target

their aid more efficiently. It would enable recipient countries to know what programs might be

most effective. As the discussion in the next few sections demonstrates, the academic community is

still a long way from having this adequate understanding.

Democracy and Foreign Aid – Conceptual Issues and Implications

The task of coming to a commonly-accepted definition of the word democracy has proven to

be quite difficult for those who study it. In an early approach, Schumpeter (1942) argues for a

conceptualization of democracy as a decision-making process. He argues that the essence of

democracy can be found in a political competition among elites for votes. He is not as concerned

about the outcome – that is, what the government looks like in form or how it behaves in practice –

but instead, is only concerned about the electoral process. In doing so, Schumpeter attempts to

ground the concept empirically, at the very least setting a minimum standard below which no

country can be considered a democracy.

At the other end of the spectrum, many have argued (e.g., Dahl 1989) that a Schumpeterian

notion of democracy leaves out important ideas such as equality, information, and citizenship. For

Dahl, the fundamental notion that needs to underpin any conceptualization of democracy is equality.

He argues that both the formation of government as well as post-formation, political decision-

making processes must be based on a fundamental equality that reflects itself in electoral rules and

the number of voices heard within any given public debate, to take just two examples. Also

important, is the notion that information must flow freely for a country to be considered a

democracy, as it is a key element in creating equal competition both in the electoral process and the

decision-making process. Finally, for Dahl, citizens, not elites (cf. Schumpeter 1942) are the driving

8

force behind democracies. Citizens should have a certain amount of political autonomy that allows

them the freedom to spell out their own interests.

Throughout the history of the study of democracy, scholars have continued to engage in this

debate either explicitly or implicitly, and it has had a large effect on the study of democracy more

generally. For example, some recent studies have argued that a more minimalist definition, one that

is closer to the Schumpeterian model, is the best empirical measure and also has a positive value

associated with it (Przeworski 1999). However, the increasing trend toward a broader conception of

what democracy should include has moved some scholars away from a minimalist definition, more

towards Dahl’s conception. In addition, there is the question of whether one is talking about the

transition to democracy or about its consolidation. The key question from both a conceptual and

methodological standpoint is where one draws the line separating democracies from non-

democracies.

Unfortunately, without a larger consensus on where some of these conceptual lines are

drawn, the literature on democracy remains open to greater scrutiny than it might otherwise be. The

consumer of this research must always ask the question of how the author’s particular conception of

democracy is affecting the outcome of the study. While these types of critical questions are certainly

not unique to the study of democracy, they do make it difficult to assess the cumulative knowledge

gains made within the field. As the definition of democracy is either broadened or narrowed with

each successive study, the field of democracy studies in general seems to take one step forward but

two steps backward.

The study of foreign aid has also suffered from similar conceptual difficulties. Although

most scholars have been able to settle on the OECD definition of foreign aid as relatively universal,

there are some that continue to insist that the OECD definition defines the concept too broadly and

others who insist that it defines it too narrowly (Thérien 2002). The commonly accepted definition

9

of foreign aid or official development assistance as outlined by the OECD includes three

components. First, the loans and grants must come from the public sector. Second, loans and

grants must be given with a specific aim of fostering economic development. Third, the loans and

grants must be concessional and contain a grant element of at least 25 percent (Organization for

Economic Co-operation and Development 1985). Thérien demonstrates that this definition

emerged as a compromise between parties on both ends of the ideological spectrum (2002, 451).

Despite the fact that the definition has been agreed upon, there are still some who continue to insist

that foreign aid is either defined too narrowly or too broadly. This criticism opens up a series of

questions.

Those on the right insist that the accepted definition reflect the widest possible range of

assistance activities within a country. They view the definition as too narrow and ask: Why not

count any element of grant or loan concession as ODA (not just 25 percent and higher) so long as it

has positive effects on the economic development of the recipient country? Why not count military

aid in ODA calculations? What about the aid from the private sector? Thus, the argument from the

right is that the OECD ODA figure is not a truly accurate representation of the generosity of

specific countries. A more accurate representation would take into account the above concerns.

Those on the left insist that the definition be narrowed even further so that governments

cannot “over-inflate” and therefore misrepresent their own generosity. They counter the criticisms

of the right with the following arguments: Why is the concession threshold so low? True foreign

assistance should not have any loan component at all. Military aid should not count toward ODA

because it is not given with the aim of fostering economic development. Finally, official assistance

should only measure that which is officially given by governments. Privately granted aid should

remain a separate and distinct category. Thus, many continue to view the study of foreign aid

skeptically, arguing that some of the true effects of aid are not being captured (Thérien 2002).

10

Given the conceptual debates associated with the studies of both democracy and foreign aid

and the fact that both have important implications for the individual study of these subjects, it is not

surprising to find that they have similarly large implications for the study of the relationship between

the two concepts. In the one most recent quantitative studies on whether and how foreign aid

promotes democracy Finkel, Pérez-Liñán, and Seligson lament the fact that it is very difficult to

specify their dependent variable – in this case, democracy – because there is no universally agreed-

upon definition and therefore, no universally agreed-upon measure of the concept (Finkel, Pérez-

Liñán, and Seligson 2005, 6-7). To get around these issues, they employ the use of a wide variety of

indices that are typically used to measure democracy, such as the Freedom House index and the

POLITY IV index. This is a strategy employed by a number of scholars working on aid and

democracy that have encountered this problem (Knack 2004; Kosack 2003). Yet many scholars

continue to use only one measure of democracy (Dunning 2004; Goldsmith 2001b). The literature

on aid also faces these issues as scholars are constantly exploring the use of data sets that give them

“a truer estimate of foreign aid” (Burnside and Dollar 2000, 847). The resulting conclusions drawn

about the relationship between democracy and foreign aid in these cases are only as good as the

initial measurements of either democracy or foreign aid on which they are based.

The distinction in the literature on democracy between democratic transition and democratic

consolidation also has consequences for this research. Many of the studies on aid and democracy

conflate the different aspects of the democratization process, making it difficult to generalize on

how best to promote democracy. As a point of fact, the promotion of democracy where none exists,

where an oppressive dictator exists, is something very different from the promotion of further or

deeper democratization in a fledgling democracy. Regardless of the fact that a divided society might

be present in both situations, thus affecting the overall strategy one might take in promoting

democracy, there are also important dynamics that make these situations distinctive enough from

11

one another. The literature on democracy and foreign aid generally ignores these distinctions and

the consequences they might have for general recommendations regarding the promotion of

democracy.

Mindful of the fact that these conceptual issues continue to plague scholars’ ability to

effectively study democracy and foreign aid respectively, let alone together, this essay turns its focus

toward the specific literature on the relationship between democracy and foreign aid. Alesina and

Dollar (2000, 34) argue that this literature can be divided up into the study of the effects of foreign

aid on the receiving countries on the one hand – that is, in this case, whether foreign aid has any

effect on the transition to democracy or the processes associated with democratization in the

recipient country. And on the other hand, one can study the determinants of foreign aid and the

motivations behind where a donor places its resources – in this case, asking the questions whether

the current level of or prospects for democratization in the recipient country dictate the level of aid

allotted to it. The next two sections examine the literature on these questions with an eye toward

assessing the overarching question of how much knowledge the scholarly community has been able

to amass on these subjects.

Does aid have any impact on democratization?

The question of whether foreign aid has any impact on democratization has been widely

studied over the past fifteen years. And despite the fact that many people are asking the question,

there is very little consensus around a particular answer. For one, scholars continue to argue over

whether there is any statistical relationship between foreign aid and democratic outcomes. There is

some evidence to indicate that foreign aid does improve democratization; however, there is other

evidence that it does not. Much of the ambiguity rests on the conceptual issues which have already

been discussed. But beyond the many who have asked whether foreign aid positively impacts

12

democratization, very few have attempted to specify how it might do so. Better theorizing about the

mechanisms through which foreign aid might impact democratization (either positively or negatively)

might lead scholars to ask more pointed questions rather than merely explore statistical relationships.

Earlier studies on whether there is any statistical relationship between foreign aid and various

levels of democratic outcomes produced ambivalent results, and most were geographically focused.

Goldsmith (2001a), for example, analyzes the relationship between the level of development

assistance given to sub-Saharan African countries in the 1990s and changes in their political systems.

He finds that aid appears to have a small but positive effect on democratization. Carapico (2002),

on the other hand, makes an argument for the “perversity thesis,” examining the case of the Arab

world, where foreign aid appears to have a limited ability to affect democratization projects and

might actually be making matters worse. Much of the aid flowing to that region has been directed at

supporting non-governmental entities involved in democratization projects. Carapico points out

that this only serves to exacerbate the state-society tensions within countries, as governments object

to the aid on the grounds that it violates their sovereignty. Finally, Bräutigam and Knack (2004)

argue that with respect to sub-Saharan Africa both perspectives are probably true. Aid has the

potential to (and often does) positively affect governance and democracy, but it also has the

potential to (and often does) negatively affect governance and democracy (260).

Attempts to resolve this debate have mostly focused on shifting the contextual elements of

the study. For example, Dunning (2004) shifts the qualifier from a regional one to a geo-strategic

one. In a response to Goldsmith’s (2001a) article, Dunning argues that foreign aid’s ability to

encourage democratization may be contingent on systemic factors. He separates the results into two

periods – Cold War and post-Cold War – and finds “the likelihood that aid may effectively promote

democracy will in fact increase when the role of strategic or geopolitical factors in allocating aid

diminishes” (Dunning 2004, 422).

13

Despite the many contextually bound studies, several scholars have attempted to make more

general claims. Knack (2004) conducts a multivariate analysis on the impact of aid on

democratization over a large sample of recipient nations and across a fairly significant time span,

1975-2000. As previously discussed, he utilizes two different democracy indices and two different

measures of aid intensity to account for various conceptual differences. In addition, he accounts for

Dunning’s (2004) systemic qualifications by running separate tests for both the Cold War and post-

Cold War periods. In the end, he finds no specific evidence that statistically supports the thesis that

foreign aid promotes democracy.

The most recent – and the most comprehensive – attempt to establish a general claim

regarding the nature of the relationship between aid and democracy is the aforementioned study by

Finkel et al. (2005). Operating with a grant provided by the Democracy and Governance program at

USAID, the authors explore the hypothesis that Democracy and Governance programming makes a

positive contribution to democratization throughout the world. The study employs a wide variety of

conceptualizations of its main variables and controls for a wide variety of other factors such as time

and location. The authors even conduct a number of other statistical tests in order to challenge their

initial finding, but in the end, the finding is statistically robust: “USAID Democracy and

Governance obligations have a significant positive impact on democracy, while all other U.S. and

non-U.S. assistance variables are statistically insignificant” (1). Thus, while seemingly

comprehensive, this tells us a great deal about USAID’s attempts to promote democracy in the

developing world but very little about the relationship between the two variables in general.

Within all of these studies, the actual mechanisms that might lead foreign aid to either

promote (or perversely, to diminish) democracy remain relatively under-explored. A number of

authors make suggestions, but few explore them in depth. For example, Goldsmith (2001a) suggests

that aid may shape domestic politics in sub-Saharan Africa in four ways: First, donor-dictated

14

structural adjustments may produce pressure for government reforms as a by product. Second, aid

may be given directly in the name of political reform either as an incentive or reward for doing so.

Third, as foreign aid is directed toward NGOs, a strengthened civil society may produce democratic

reforms. Finally, aid may be given with specific political conditions attached that could lead to

reform.

Bräutigam and Knack (2004) add to this discussion by suggesting specific institutional

impacts. They argue that aid might be used, for example, for the improvement of civil services in

the recipient country, in the strengthening of the country’s policy and planning capacity, or in the

establishment of strong, central institutions – all of which might result in an improvement of

governance. Knack (2004) suggests that aid can positively affect electoral processes in the form of

technical assistance. It can also have a positive impact on the promotion of civil society and the

strengthening of the judiciary and legislative branches of government which can serve as checks on

the executive power. Finally, he suggests that foreign aid might make a positive impact on education

in the recipient country, thereby increasing the prospects for democratization.

Despite the mention of all of these factors as potential mechanisms, none of them is

specifically tested by its respective author. Each author has a larger goal of determining whether

there is any relationship between aid and democracy, and as mentioned, the studies produce

different findings. The possible mechanisms at work either for or against aid’s ability to promote

democracy remain underspecified. Readers are left to speculate as to which mechanism (and to what

extent) either promoted or hindered foreign aid’s ability to positively affect democratization.

In the end, there is very little that can be said definitively with respect to foreign aid’s ability

to lead to democratization. There seems to be a good amount of evidence on both sides of the

debate, given various geographical and geo-strategic contexts. The specific mechanisms underlying

the relationship between the two variables have been under-theorized and virtually untested, giving

15

the consumer few tools with which to sort through the ambiguity. The answers to several important

questions remain largely unanswered.

Determinants of foreign aid: How does democracy affect aid flows?

The literature on the determinants of foreign aid has explored a number of ways that issues

of governance might enter into the decision-making processes of donor countries. To start, a variety

of scholars have studied the extent to which the human rights record of recipient countries matters

in terms of whether or not donor countries give and if they do, the extent (Abrams and Lewis 1993;

Cingranelli and Pasquarello 1985; Neumayer 2003a; Neumayer 2003b; Watson and McCluskie 1997).

Cingranelli and Pasquarello (1985) argue that human rights considerations did appear to factor into

the U.S. decision to provide foreign aid to Latin America. This is a controversial result which is

debated back and forth during the following years (Abrams and Lewis 1993; McCormick and

Mitchell 1988; Poe 1992). Watson and McCluskie (1997) point out that the variety of studies done

on this subject suffer from various methodological weaknesses including the fact that many are

single-nation case studies, encompass only one year of analysis, or use aid as the only measure of U.S.

assistance or U.S. foreign policy more generally. To move beyond this criticism, they employ a

three-year analysis and a variety of different aspects of foreign policy including foreign aid. They

find that human rights considerations were not a significant concern regarding foreign aid

distributions in Latin American in the 1980s.

Neumayer (2003a) extends these studies beyond Latin America and the 1980s. He argues

that between 1985 and 1987, respect for human rights plays a significant role at the selection stage of

foreign aid – that is, the point at which the donor country decides whether or not the recipient

country will receive any aid. However, at the second stage – where the donor decides on the

amount of aid to be received – human rights considerations play very little role. In later studies, he

16

separates multilateral aid from bilateral aid, but finds similar results (2003b). Important in these

findings, is the fact that human rights are defined specifically as civil and political rights. This

definition moves us more toward the broader question at hand: namely, how do issues of political

rights, specifically of democracy and good governance, factor into the decision-making process of

donor countries?

Svensson (1999) offers a preliminary take on this question using partial correlations. He

finds that, in general, the “donor community has not systematically allocated aid to more democratic

countries during the 1990s, when controlling for population” (293). Alesina and Dollar (2000)

largely confirm this result with more stringent statistical testing. They argue that the decision on

where to give foreign aid by a donor country is driven more by political and strategic concerns than

by either the economic or policy performances of the potential recipient countries. Whether or not

the recipient is a former colony of the donor and the extent to which the two countries have

political alliances seem to matter most. However, the two authors are careful to note that the data

does suggest that, at the margin, countries that democratize tend to receive more aid, all else being

equal. In addition, they note that aid tends to flow in the direction of countries that have recently

undergone democratic transition (“democratization episodes”) but not necessarily in the direction of

a gradual process of policy reform (34). These particular findings have been supported with both

qualitative and quantitative evidence in other studies (Hearn 2000; Houngnikpo 2003).

A number of authors argue that even where “good governance” is explicitly set forth as a

criterion for the receipt of foreign assistance, the term is merely being used as a means of promoting

the donor country’s own strategic interest. Hearn (2000), for example, is critical of the motives

behind U.S. foreign aid to South Africa. She argues that despite the fact that the U.S. gives in the

name of supporting democracy, its true goal for South Africa is economic stability. In this respect,

many of the civil society organizations supported by the United States tend to be focused on

17

“promoting the values, procedures, and overall framework of liberal democracy” (818). Hout (2004)

extends this argument beyond the United States, looking at two additional donors – the

International Development Association and the Netherlands – and arguing that donors’ preferences

for pro-market and trade-oriented policies are embedded within their insistence on democracy and

good governance. This leads donors to overlook the structural causes of bad governance, favoring

instead the instrumental value in good governance (607). Houngnikpo (2003) agrees, noting that

“democracy is an elastic concept…it seems, at least at this point, that the new gospel of democracy

is but a convenient tool used by different players for their own selfish reasons” (197).

Thus, overall, the literature on the relationship between governance and foreign aid tends to

view the subject cynically. Although some have argued that decisions on foreign aid allocations have

increasingly been influenced by the level of democratization or good governance in the recipient

country, others have refuted these claims. Others even claim that strategic interests are embedded

within stated preferences for good governance and democracy expressed by donor countries. Yet

despite the large number of studies conducted on the issue, it seems that the criticisms of Watson

and McCluskie (1997) – namely that too many of the studies are single-country, focused on a brief

time-span, and fail to account for the various conceptual difficulties associated with the terms

governance, democracy, and aid – have yet to be fully addressed. More large-n studies, covering a

broader time span, need to be conducted.

However these large-n studies should not completely replace case studies exploring the

motives behind particular donor country decisions. While the United States has been covered quite

well in this regard, little has been done on the other OECD DAC members. The treatment of all

international aid donors as relatively similar actors ignores the often differing domestic political

dynamics within these states. Often – particularly in the United States – there is a repetitive political

economy associated with the budgetary allocation process. This undoubtedly has an effect on the

18

specific strategies undertaken in the promotion of democracy. Given all of the literature on the

effect of domestic politics on foreign policy, these dynamics must be taken into account. As it

stands now, the literature fails to capture the domestic politics associated with decision-making and

particularly foreign aid policymaking.

How else might the relationship between aid and democracy be important?

Finally, it is important to explore another critical way in which the literature has tried to

relate the concepts of foreign aid and democracy. Most of the literature on foreign aid has been an

attempt to explore whether or not it meets its principle goal – namely, an increase in the

development of the recipient country. More recently, however, the question of whether democracy

or good governance has a positive or negative impact on foreign aid’s ability to promote

development has received significant attention. Much of this literature is closely tied with that of the

previous section on the determinants of aid, as many use the fact that democracy may allow aid to

be more successful in promoting development as a foundation on which to make the argument that

aid should be targeting good governance (World Bank 1998).

Boone (1996) is one of the early works which takes the key step of linking aid effectiveness

to political regimes. He finds that whether the recipient government is a liberal democracy or highly

repressive autocracy, aid has the similar effect of increasing the size of the government without

increasing investment or significantly benefiting the poor. However, he does concede that at the

margin, liberal democracies tend to have lower infant mortality rates, which may reflect a willingness

to provide more services to the poor (323). Boone argues that an implication of this finding could

be that aid should be retargeted toward the support of newly liberal regimes.

In a well-cited study on foreign aid Burnside and Dollar (initially 1997, but 2000 version

cited here) contradict Boone’s findings. Although their primary concern is the extent to which aid

19

affects growth, one of the particularly robust findings of their study is that aid tends to be more

effective in promoting growth if it is used in good policy environments. The authors employ a new

World Bank database and panel data from fifty-six counties spanning the years 1970 to 1993 (847).

The findings as presented in the initial World Bank paper in 1997 became the basis for a much larger

study conducted by the Bank on foreign aid (World Bank 1998). In Assessing Aid, the Bank

essentially reaches the same conclusions as Burnside and Dollar – that aid does help increase growth,

but only in countries with good governance and/or sound economic management. They authors

use this finding to argue that foreign aid should be allocated between the potential recipient

countries according to their respective policy environments, and that conditionality (the use of aid as

an incentive) should be replaced by selectivity (the use of aid as a reward).

Much of the literature coming after Assessing Aid has been produced as a specific reaction to

it. For example, in a special issue of the Journal of Development Studies, Hermes and Lensink (2001)

critique the World Bank study on two broad fronts. First, they argue that although the Bank offers

evidence on the macroeconomic effectiveness of aid, it is actually less convincing than it seems.

Other evidence exists which could lead one to different policy conclusions (13-14). Second, they

take issue with the Bank’s suggestion that donors move from using conditionality toward using

selectivity in aid allocations. Selectivity is merely conditionality in disguise – the principle of using

specific conditions to make aid decisions is essentially the same in both (14). They argue that

normatively aid should be used as a form of support with which countries can achieve good policies,

not as a reward for countries that already have them. The work of several other authors in the same

special issue is offered in support of this contention (e.g., Dalgaard and Hansen 2001).

Kosack (2003) reviews this literature and posits that the question of whether democracy

allows aid to positively impact growth is not necessarily the correct one. He argues that the quality

of life should be the measure of effectiveness. Using this measure, he finds that aid is most effective

20

when combined with democracy, though it does not seem to affect the quality of life in aggregate

absent these conditions. He suggests that aid might be more effective if it were given in

combination with efforts that encourage democratization.

Conclusion

This essay began by asking series of questions that one might expect the literature on

democracy and foreign aid be able to answer. These questions can essentially be divided into three

main sets: 1) Does foreign aid actually promote democracy? If so, what are the mechanisms through

which this is best accomplished? 2) Conversely, is democracy a determinant of foreign aid? Does

the existence of democracy in a recipient country lead to its receipt of more foreign aid? If so, how

much more are countries that are relatively more democratic than other potential aid recipients likely

to receive from international aid donors? 3) Finally, what can be said about the relationship between

democracy and aid, where democracy might act as either a positive or negative intervening variable

that might affect foreign aid’s impact on other goals? For example, does democracy foster or inhibit

foreign aid’s ability to promote economic development? What are the mechanisms behind this

relationship? Unfortunately a review of the literature does not offer solid answers – at least ones

generating wide consensus – on any of these questions.

On the question of whether aid promotes democracy, several studies have produced

alternate conclusions. Many of these studies are contextually specific, their scope bound by either

geography or systemic context. While these distinctions are undoubtedly important, they do limit

one’s ability to draw broader conclusions. On the second set of questions, there seems to be a

greater consensus about democracy as a determinant of foreign aid. Most argue that democracy and

governance have little to do with the provision of foreign aid and that strategic interests of the

donor are more important. However, there are a number of key studies where the authors seem to

21

demonstrate otherwise. Finally, on the third set of questions question regarding whether or not

democracy allows foreign aid to achieve some of its other goals of promoting growth and increasing

the quality of life, the debate continues. Important studies demonstrate robust findings that

democracy is an important intervening factor; just as other important studies with similarly robust

findings show that it is not.

With respect to all three sets of questions, a similar critique emerges. There is still not

enough known about the specific mechanisms through which democracy and foreign aid might

interact. If foreign aid has particular institutional impacts that affect democracy in a particular way,

then this needs to be more adequately theorized and tested empirically. If aid interacts with the civil

service in a particular country and this impacts democracy in a particular way, then this needs to be

studied. Similarly – but by no means exhaustively – if aid has a particular impact on education that

might impact democratization in a country, then this linkage should be more fully specified.

In order to get at these particular effects, scholars studying all three aspects of the

relationship between democracy and foreign aid must begin to pay more attention to the domestic

political economies and more general political contexts that are associated with the provision and

receipt of foreign aid. Only by comparatively examining the various and competing sectoral

interests associated with the foreign aid’s provision and receipt can we begin to understand why aid

is directed to particular sectors in recipient countries. This step allows us a clearer explanation as to

why aid from some donors is more or less effective in assisting the process of democratization in

particular recipient countries.

Finally, the conceptual issues surrounding the study of democracy and foreign aid

respectively need to be resolved. The problems these disagreements present for the study of these

issues individually are only multiplied when thinking about how concepts might interact with one

another. In the end, these questions are too important to not have adequate answers or

22

understandings. Both donors and recipients have a large stake in scholars’ ability to better

understand this relationship.

23

FIGURE 1 ODA ALLOCATION FOR SELECTED YEARS (1980-2003)

1980 1983 1986 1989 1992 1995 1998 2001 2003

I.5 Government & Civil Society 151.66 307.31 498.23 851.77 1139.23 2502.44 1731.72 3522.95 4712.89I.SOCIAL INFRASTRUCTURE & SERVICES 2322.13 3434.68 4177.91 5363.46 6638.28 8379.66 9226.88 13192.06 17792.37II.ECONOMIC INFRASTRUCTURE 7135.72 6770.48 6041.39 9279.58 7236.01 8914.87 7829.49 6254.67 6000.91III.PRODUCTION SECTORS 5091.91 5497.01 5080.72 6630.12 6222.22 2507.11 2976.94 3405.11 3585.91IV. MULTISECTOR 793.46 1113.44 936.94 1860.5 2372.44 2999.5 2240.47 2866.89 5430.15V.TOTAL SECTOR ALLOCABLE (I+II+III+IV) 15343.22 16815.6 16236.96 23133.67 22468.95 22801.13 22273.78 25718.73 32809.33VI. COMMODITY AID / GENERAL PROG. ASS. 7931.16 7025.01 10033.62 8133.94 6140.09 3556.79 3033.25 3228.44 4452.08VII. ACTION RELATING TO DEBT 2040.26 467.71 890.2 1050.47 3044.09 2216.04 3531.37 4230.42 14417.71VIII. EMERGENCY ASSISTANCE AND RECONSTRUCTION 367.5 378.87 760.98 432.32 867.04 1205.6 2466.35 3203.65 6835.85IX. ADMINISTRATIVE COSTS OF DONORS n/a n/a n/a n/a n/a 2.52 161.95 1240.08 1339.51X. SUPPORT TO NGO'S 3.93 5.4 43.66 9.9 33.37 324.24 309.96 879.2 385.29XI. UNALLOCATED/UNSPECIFIED 833.25 415.63 420.35 677.2 322.07 434.98 947.97 1036.38 907.31XII.TOTAL 26519.33 25108.23 28385.77 33437.5 32875.6 30541.31 32724.62 39536.9 61147.06Source: (Organization for Economic Co-operation and Development 2005). * All amounts are $ million - 2003 Prices; amounts represent the total OA/ODA from all DAC donor countries to all developing countries, as defined by OECD. ** I.5 (“Government & Civil Society”) is a component of I. (“SOCIAL INFRASTRUCTURE & SERVICES”)

24

FIGURE 2

ODA TO GOVERNMENT & CIVIL SOCIETY AS % OF TOTAL ODA (1980-2003)

0

1

2

3

4

5

6

7

8

9

1019

80

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

Source: (Organization for Economic Co-operation and Development 2005).

25

References

Abrams, Burton A., and Kenneth B. Lewis. 1993. Human rights and the distribution of U.S. foreign aid. Public Choice 77(4): 815-821.

Adams, Francis. 2001. Prosperity: The political economy of foreign assistance. Peace, Prosperity and Democracy 1(1): 17-24.

Alesina, Alberto, and David Dollar. 2000. Who gives foreign aid to whom and why? Journal of Economic Growth 5: 33-63.

Boone, Peter. 1996. Politics and the effectiveness of foreign aid. European Economic Review 40: 289-329.

Bräutigam, Deborah A., and Stephen Knack. 2004. Foreign aid, institutions, and governance in sub-Saharan Africa. Economic Development and Cultural Change 52(2): 255-285.

Burnside, Craig, and David Dollar. 2000. Aid, policies, and growth. American Economic Review 90(4): 847-868.

Carapico, Sheila. 2002. Foreign aid for promoting democracy in the Arab world. Middle East Journal 56(3): 379-395.

Carothers, Thomas. 2000. Democracy promotion: A key focus in a new world order. Issues of Democracy May (5).

———. 1996. Assessing democracy assistance: The case of Romania. Washington, DC: The Carnegie Endowment for International Peace.

Cingranelli, David L., and Thomas E. Pasquarello. 1985. Human rights practices and the distribution of U.S. foreign aid to Latin America. American Journal of Political Science 29(3): 539-563.

Dahl, Robert. 1989. Democracy and its critics. New Haven, CT: Yale University Press.

Dalgaard, Carl-Johan, and Henrik Hansen. 2001. On aid, growth, and good policies. Journal of Development Studies 37(6): 17-41.

Development Assistance Committee. 2004. Peer review of France. OECD, Available at http://www.oecd.org/dataoecd/31/40/32556778.pdf.

———. 2001. Peer review of Germany. OECD, Available at http://www.oecd.org/dataoecd/20/62/1934046.pdf.

Diamond, Larry. 1992. Promoting democracy. Foreign Policy 87: 25-46.

26

Doornbos, Martin. 2001. ‘Good governance’: The rise and decline of a policy metaphor? Journal of Development Studies 37(6): 93-108.

Dunning, Thad. 2004. Conditioning the effects of aid: Cold war politics, donor credibility, and democracy in Africa. International Organization 58: 409-423.

Federal Ministry for Economic Cooperation and Development. 2002. Why do we promote good governance in developing countries? Germany: Division of Development Education and Information, Available at http://www.bmz.de/en/service/infothek/fach/spezial/spezial050/90.pdf.

Finkel, Steven E., Aníbal Pérez-Liñán, and Mitchell A. Seligson. 2005. Effects of U.S. foreign assistance on democracy building: Results of a cross-national quantitative study. The Association Liaison Office for University Cooperation and Development.

Goldsmith, Arthur A. 2001a. Donors, dictators, and democrats in Africa. Journal of Modern African Studies 39(3): 411-436.

———. 2001b. Foreign aid and statehood in Africa. International Organization 55(1): 123-148.

Hearn, Julie. 2000. Aiding democracy? Donors and civil society in South Africa. Third World Quarterly 21(5): 815-830.

Hermes, Niels, and Robert Lensink. 2001. Changing the conditions for development aid: A new paradigm? Journal of Development Studies 37(6): 1-16.

Houngnikpo, Mathurin C. 2003. Pax democratica: The gospel according to St. Democracy. Australian Journal of Politics and History 49(2): 197-210.

Hout, Wil. 2004. Political regimes and development assistance. Critical Asian Studies 36(4): 591-613.

Huntington, Samuel P. 1991. The third wave: Democratization in the late twentieth century. Norman, OK: University of Oklahoma Press.

Knack, Stephen. 2004. Does foreign aid promote democracy? International Studies Quarterly 48(1): 251-266.

Kosack, Stephen. 2003. Effective aid: How democracy allows development aid to improve the quality of life. World Development 31(1): 1-22.

Lowenthal, Abraham F., ed. 1991. Exporting democracy: The United States and Latin America. Baltimore: The Johns Hopkins University Press.

McCormick, James M., and Neil Mitchell. 1988. Is U.S. aid really linked to human rights in Latin America? American Journal of Political Science 32(1): 231-239.

27

McFaul, Michael. 2004. Democracy promotion as a world value. Washington Quarterly 28(1): 147-163.

Neumayer, Eric. 2003a. Do human rights matter in bilateral aid allocation? A quantitative analysis of 21 donor countries. Social Science Quarterly 84(3): 650-666.

———. 2003b. Is respect for human rights rewarded? An analysis of total bilateral and multilateral aid flows. Human Rights Quarterly 25(2): 510-527.

Organization for Economic Co-operation and Development. 2005. International development statistics online, http://www.oecd.org/dac/stats/idsonline (accessed December 1, 2005).

———. 1985. Twenty-five years of development co-operation: A review. Paris: OECD.

Poe, Steven C. 1992. Human rights and economic aid allocations under Ronald Reagan and Jimmy Carter. American Journal of Political Science 36(1): 147-167.

Przeworski, Adam. 1999. Minimalist conception of democracy: A defense. In Democracy’s value., eds. Ian Shapiro, Casiano Hacker-Cordón, 23-55. New York: Cambridge University Press.

Rich, Roland. 2001. Bringing democracy into international law. Journal of Democracy 12(3): 20-34.

Santiso, Carlos. 2001. International co-operation for democracy and good governance: Moving towards a second generation? European Journal of Development Research 13(1): 154-180.

Schumpeter, Joseph. 1942. Capitalism, socialism, and democracy. New York: Harper.

Sen, Amartya. 1999. Democracy as a universal value. Journal of Democracy 10(3): 3-17.

Sørensen, Groeg. 1993. Political conditionality. London: Frank Cass.

Stokke, Olav. 1995. Aid and political conditionality. London: Frank Cass.

Svensson, Jakob. 1999. Aid, growth and democracy. Economics and Politics 11(3): 275-297.

The White House. 2002. The national security strategy of the United States of America.

Thérien, Jean-Philippe. 2002. Debating foreign aid: Right versus left. Third World Quarterly 23(3): 449-466.

Watson, Robert P., and Sean McCluskie. 1997. Human rights considerations and U.S. foreign policy: The Latin American experience. Social Science Journal 34(2): 249-257.

Woods, Ngaire. 2005. The shifting politics of foreign aid. International Affairs 81(2): 393-409.

World Bank. 1998. Assessing aid: What works, what doesn’t, and why. Oxford: Oxford University Press.